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CAO target of class-action lawsuits

Two US firms claim top executives helped to falsely elevate share price and assisted in stock disposal

China Aviation Oil (Singapore) Corp's chances of getting back on its feet have been dealt another fresh blow with the launch of two class-action lawsuits in the United States against the beleaguered Singapore-listed oil-trading company.

Two New York-based firms that specialise in class actions - Lerach Coughlin Stoia Geller Rudman & Robbins and Murray, Frank & Sailer - are seeking more CAO shareholders to join their case against the company and two of its key executives.

In a complaint filed in the District Court, Lerach claims CAO and its chairman Jia Changbin and chief executive Chen Jiulin made false and misleading statements about the firm between February 5 and November 30 last year.

'As a result of the defendants' false statements, CAO shares traded at inflated levels during the class period, whereby the company's top officers and directors assisted the company's controlling shareholder in the sale of US$120 million worth of its own shares,' the legal complaint said.

The two new class actions filed in the District Court are not the only legal actions that have been taken against CAO, which sought court protection in Singapore early last month after raking up derivatives losses of US$550 million.

CAO and its Beijing-based parent are also being sued by a group of Indonesian businessmen over the collapse of a deal to buy 20.6 per cent of a Singapore oil refiner.

The US$220 million deal to buy a minority stake in Singapore Petroleum Corp fell apart in November last year when CAO found it could no longer fund the purchase because of its massive derivatives losses.

One of CAO's creditors - which are collectively owed about US$247 million - has also filed a statutory demand against the company for US$14.4 million that would put CAO into liquidation if it was ever triggered.

CAO's other creditors have also not ruled out moves to have the Singapore-listed company placed under judicial management.

The two new US class actions represent a major blow to CAO's efforts to come up with a restructuring plan that has to be presented to the company's creditors within the next three weeks.

It is understood that the restructuring plan now being worked out by CAO's financial adviser Deloitte & Touche will probably involve creditors having to accept debt write-offs of as much as 80 per cent.

But any such restructuring plan will have to be approved by a majority of its creditors.

CAO's massive derivatives loss is Singapore's biggest financial scandal since the rogue trader Nick Leeson broke Barings Bank with trading losses of US$1.4 billion in 1995.

Singapore police are investigating the role that suspended CAO chief executive Mr Chen played in the company's derivatives losses. In addition, separate inquiries are also being conducted by both the Singapore stock exchange and the Monetary Authority of Singapore, the city state's de facto central bank.

Exchange spokeswoman Cheng Lee Ching said yesterday that its investigation into the Singapore-listed company was ongoing.

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